Question

Below are the statements of financial position of three entities as at 30 September 2019

                                                           

Papa               Mama              Daughter

$’000               $’000               $’000

Non-current assets                                       24,000             7,500               3,000

Property, plant and equipment                       14,000             7,500               3,000

Investments                                                    10,000             –                      –

Current assets                                              6,000               3,000               1,500

––––––            ––––––            ––––––

30,000             10,500             4,500

––––––            ––––––            ––––––

Equity & liabilities

Equity                                                             17,500             6,500               3,000

Share capital

(P1 ordinary shares)                                       10,000             1,000               500

Retained earnings                                          7,500               5,500               2,500

Liabilities                                                       12 500             4 000               1 500

Non-current liabilities                                  8,000               1,250               500

Current liabilities                                          4,500               2,750               1,000

––––––            ––––––            ––––––

30,000             10,500             4,500

––––––            ––––––            ––––––

Further information:

1. Papa acquired 75% of the equity share capital of Mama several years ago, paying $5 million in cash. At that time the balance on Mama's retained earnings was $3 million.
2. Papa acquired 30% of the equity share capital of Daughter on 1 October 2017, paying $750,000 in cash. On 1 October 2017 the balance on Daughter 's retained earnings was $1.5 million.
3. During the year, Papa sold goods to Daughter for $1 million at a mark-up of 25%. At the year-end, Daughter still held one-quarter of these goods in inventory.
4. As a result of this trading, Papa was owed $250,000 by Daughter at the reporting date. This agrees with the amount included in Daughter 's trade payables.
5. On 30 September 2019, it was determined that the investment in the associate was impaired by $35,000.
6. Non-controlling interests are valued using the fair value method. The fair value of the non-controlling interest in Mama at the date of acquisition was $1.6 million.

Required: Prepare Papa’s consolidated statement of financial position as at 30 September 2019.

Answer 1

Papa has 75% holding in Mama and hence Mama will be qualified as subsidiary and will be considered for consolidation using purchase method.

Papa's investment in Daughter is 30% holding and will not be accounted as subsidiary but equity method of consolidation to be followed.

Consolidated statement of financial position of Papa Ltd-

As at September 30, 2019-

Assets:
Non- Current Assets
Property, plant & equipment	21,500
Investments	6,150
Goodwill	2,600
Current Assets	9,000
	39,250
Equity and Liqbilities:
Equity
Share Capital	10,000
Retained earnings	10,525
Non-Controlling interest	2,225
Liabilities
Non-current liabilities	9,250
Current liabilities	7,250
	39,250
Calculation of Goodwill-
Purchase consideration	5,000
Pre-acquisition earnings	(3,000)
Share capital	(1,000)
Fair value of non-controlling interest	1,600
Goodwill	2,600

Calculation of Goodwill-
Purchase consideration	5,000
Pre-acquisition earnings	(3,000)
Share capital	(1,000)
Fair value of non-controlling interest	1,600
Goodwill	2,600
Calculation of Non-controlling interest-
Fair value of non-controlling interest	1,600
Post acquisition profits	625
(5,500 - 3,000)*25%
	2,225
Calculation of Investments-
Total Investment made	10,000
Eliminated for Mama	(5,000)
Impairment of investment	(35)
Share of profit from Daughter	1,200
(5,500 - 1,500)*30%
Provision for unrealised profit	(15)
	6,150
Calculation of Retained earnings-
Papa's retained earnings	7,500
Post-acquisition profits of Mama	1,875
(5,500 - 3,000)*75%
Impairment of investment	(35)
Share of profit from Daughter	1,200
Provision for unrealised profit	(15)
	10,525
Calculation of unrealised profit
Sale value	1,000
Mark-up	25%
Cost	800
Profit	200
One quarter inventory unsold	50
Share in associate (30%)	15